The Transfer Problem Revisited: Net Foreign Assets and Real Exchange Rates
AbstractThe relationship between international payments and the real exchange rate - the ‘transfer problem’ - is one of the classic questions in international economics. In this paper we use cross-country data on real exchange rates and a newly constructed data set on countries’ net external positions to shed new light on this old question. We present a simple theoretical framework that leads to empirically testable implications on the long-run co-movements of real exchange rates, net foreign assets, relative GDP and terms of trade, and cross-country and time-series evidence on the subject. We show that on average countries with net external liabilities have more depreciated real exchange rates, and that the main channel of transmission seems to work through the relative price of nontraded goods, rather than through the relative price of traded goods across countries.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2511.
Date of creation: Jul 2000
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- Philip R. Lane & Gian Maria Milesi-Ferretti, 2004. "The Transfer Problem Revisited: Net Foreign Assets and Real Exchange Rates," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 841-857, November.
- Philip R. Lane & Gian Maria Milesi-Ferretti, 2000. "The Transfer Problem Revisited: Net Foreign Assets and Real Exchange Rates," Working Papers 062000, Hong Kong Institute for Monetary Research.
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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